Table 20-1 Suppose the Economy of Macroland Is Described by the Following

question 95

Multiple Choice

Table 20-1
Suppose the economy of Macroland is described by the following:
C = 200 + .8DI (DI = disposable income)
I = 300 + .2Y − 50r (Y = GDP)
(r, the interest rate, is measured in percentage points.For example, a 9 percent interest rate is r = 9) .
For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate at
r = 5
G = 750
T = .25Y
X = 200
M = 150 + .2Y
Hint: DI = Y − T
-From Table 20-1, find the trade deficit or surplus.

• A)475 deficit 
• B)75 deficit 
• C)75 surplus 
• D)475 surplus

Explore the impact of mixing risk-free and risky assets on a portfolio's risk and return.

Recognize the role of diversification in managing portfolio risk.

Identify the mathematical relationships used to determine the standard deviation of a portfolio's return.

Compare and contrast the effects of different asset combinations on portfolio variance.

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Definitions:

Additional Paid-in Capital

The amount of money investors have paid to a company above and beyond the par value of the shares they have purchased.

Cumulative Preferred Stock

A type of preferred stock where dividends accumulate if not paid in any given year, ensuring that dividends must be paid out to preferred stockholders before common stockholders receive any.

Declared Dividend

A portion of a company’s earnings that is approved by the board of directors to be distributed to shareholders on each share of the company's stock.

Common Stock Outstanding

The total number of a company's shares of common stock that are currently owned by investors, including both public and private investors.